Why is German productivity stalling? Bureaucracy, missing investment and the rise of administrative jobs

Germany's economy shows worrying signs of stagnation: labour productivity growth that averaged about 2% a year in the 1980s and 1990s has slowed to roughly 0.3% per year over the past six years, leaving almost no real increase in output per worker. The shortfall has prompted economists to ask whether too much work in the country is devoted to low-value administrative tasks instead of investment and innovation.

"Three factors overlap here," says Christian Kestermann of the Institute of the German Economy (IW) in Cologne, who led a study for the Foundation for Family Businesses. He points to slower-than-expected digitalisation gains and a lack of technological advances as one cause; demographic change and a growing shortage of skilled labour that encourages firms to retain more staff than they can productively employ as another; and underinvestment in new capital — machines, factories and infrastructure — as a third.

Administrative growth and 'reporting' jobs

Jerg Kremer, chief economist at Commerzbank, is blunt: bureaucracy has grown too large in Germany. "It is no coincidence that the public sector, together with IT, is among the areas where employment has grown the fastest. Just think of the many people who fulfil reporting obligations set by different laws, who write sustainability reports. There are also numerous authorised [people] for this and that," he says — pointing to a proliferation of roles that, in his view, do not deliver high productivity.

Rainer Kirchdorfer, president of the Foundation for Family Businesses, warns that calling these jobs "unproductive" risks blaming workers. "That sounds like an accusation that people are lazy or work too little. That is not the case at all," he says. Instead, he argues the problem is often misallocated effort: employees may be busy with tasks that ultimately provide no social benefit, and "if an employee in a company or public service works on tasks that in the end bring no benefit to society, then he has an unproductive job and should do something else," according to Kirchdorfer. "Not because subjectively he does too little, but because he is overloaded with tasks that are meaningless."

The study from the Foundation for Family Businesses — titled "There is a path to growth for Germany" — stresses that excessive regulation and slow digital reform in public administration have tied up capital and labour that could otherwise support innovation. The researchers estimate Germany would need to grow production more than five times faster than current rates to maintain the present level of welfare.

Short-term remedies recommended repeatedly are faster digitalisation, wider adoption of artificial intelligence and, above all, higher investment. Kestermann describes the issue partly as one of trust: reducing bureaucracy and regulatory barriers could itself become an engine of growth by freeing time and capital for productive uses. "We see the signals of crisis everywhere. This economy is no longer growing. Because of this incomes stagnate, and in some sectors even fall," Kremer warns — a development households already feel in living standards and consumer confidence.

Photo: press material from the event